Life In The FAST Lane: Financial Modelling Competition Winners

James Wambua a 4th year Business and Finance student at University of Nairobi was walking on campus grounds heading to his dorms when a friend asked to borrow his laptop and for help carrying speakers. He helped carry the sound equipment to the meeting room, set up and then decided to sit in and find out what the session was all about. It turned out to be a financial modelling training session that changed his life.

James Wambua

“The trainer gave us a case to model and all of us tried to solve it using various methods. At the end of it, he introduced a variable which threw a spanner in the works. Suddenly, everyone was struggling with adjusting the outcome. And then he introduced the FAST Standard, and we were amazed that it did away with the margin of error” James recalled.

Kevin Mbugua fondly remembers the session that he terms as “the most productive training session he attended in his 4 years as a student at Nairobi University campus.” Kevin, a Finance and Accounting student, had received a Whatsapp message inviting him for the training. InVhestia had put out a call for students from various university campuses to participate in a financial modelling competition. The top prize was an internship as well as sponsorship for the FAST Certification exam. “The prize was a motivator but I was more interested in learning. I was looking for a challenge, to see what other opportunities there were outside of Accounting based on my area of study. I figured this would be an avenue to explore what was out there,” Kevin says.

Kevin Mbugua

After the training session, the students then spent some time going through the InVhestia’s free online training material to prepare for the financial modelling competition and tried their best to come up with a solution to the case given to them. On submission, they both remember being unsure about their results. However, a few weeks later they came to an InVhestia cocktail with other students from Strathmore University, their only information, they were shortlisted as the top performers in the competition. It is then they learnt that they had come in first and second position. Kevin, who led the students at the top, was surprised and elated. His first call was to his mother who he says was over the moon.

Both Kevin and James joined the InVhestia team and have enjoyed learning more as regards the financial industry. They have both recently passed their FAST Certification examination and are better modellers for it. “I think every student should take hold of opportunities like these,” says James. Even though he stumbled into it, he’s glad he did.  James hopes to pursue a Masters in Strategic Management in the near future. Kevin’s advice to students is to look out for training opportunities that will give them more than a certificate of attendance. He has aspirations of being a business owner and believes all he has learnt only serves to make him more successful.

InVhestia will be running the 2nd edition of the FAST financial modelling inter-university competition in October 2017.

There is no Excel money!

Our Trainings

We offer customized training solutions for teams using adapted case studies to ensure that participants gets maximum learning from our trainings. With two trainers in each session, you are assured that no team member gets left behind.

The trainings typically start with an introduction of InVhestia and the trainers. The trainer then asks the participants what their expectations for the training are and to rate their modelling ability – this allows for the trainer to know what aspects of the content to focus on and how to pace of the training.

To create an understanding of what a FAST Standard financial model entails, the trainer expounds on the four aspects of the methodology, that is, Flexible, Appropriate, Structured and Transparent, with real life examples in order to imprint the importance of these aspects.

The beauty about our open course is that professionals from various institutions get to share their experiences in financial modelling, what approach they use and the challenges and merits of the same.

Before any training, we deem it important to explain to participants that financial modelling is not an end in itself.

What does this mean?

The purpose of a financial model is to give an optimized level of decision making by bringing in new/ different perspectives. Many err when they view financial modellers as people who merely build spreadsheet models instead of understanding that their role is essential in problem solving.

To the same degree, a financial model is a tool that helps in decision making. As in any problem solving method, it is important to understand the problem. When InVhestia engages with a client, we always ask the answer what three to five answers they are hoping to get out of a model. This is because clients often have in mind a picture of what they would like but may not know what questions a model can help answer. Our role therefore, through financial modelling, is to introduce various aspects that many do not usually take into consideration when checking the viability of an investment, project, valuation etc.

To do this, one needs to create a conceptual model and a checklist of the client’s needs. That way, when you finally get round to building your model, the model itself responds to what is happening on the ground and not abstract assumptions. And that is why you’ll hear the phrase, ‘Excel money is real money!’

Our advice to any person who wants to create a model, do not open the spreadsheet until you understand the business problem. Spreadsheets are just part of the process, not the entire process.

Valuation

By Collins Kuindwa

When it comes to fundraising, mergers and acquisitions, the most common question asked is, “What is the business worth?” A seemingly simple question, however, in order to get the answer one must carry out a valuation.

 

So what does a valuation entail?

Carrying out a valuation is not complex; we (the people who practice valuation) just choose to make it complicated. I’ll tell you why.

In layman terms, valuation of a company is a short process involving the followings steps:

Step 1: Determine the value of existing investments or assets that are currently generating cash flows in the business today. Typically the value of such assets will be the summation of all future expected cash flows from these assets.

Step 2: Determine the expected value of future investments. This can be referred to as growth assets.

Step 3: Sum up the value of existing assets (determined in step 1) and growth assets (determined in step 2).

Step 4: Determine what is owed to third parties by the business; the value of borrowed moneys.

Step 5: Deduct the amount of total borrowings (determined in step 5) from the total asset value (determined in step 3)

 

But does this mean anyone can do valuation?

Not necessarily. Here’s why?

In mature companies (and by mature companies I mean those that have passed the test of time) – most of the value is derived from existing investments that have already been made. However, in young growth companies, commonly referred to as startups, existing assets are minimal and can barely form a good justification for value. It gets more challenging when you come across a young company that is not making any money (commonly referred to as idea companies)- where then do we get the value?

We get the valuation from expectations, perceptions and future hopes as guided by the founders of these young growth companies.

The way you come up with a valuation will be very different based on the type of company you are looking at. If it is a mature company, you need to be very focused on the earnings reports. If it’s a startup, focus should be in the expected value that will be created by future investments! Because, ideally speaking, the valuation of a young growth company does not come from what happened last year; it is coming from the value that will be created in the future. This makes valuation a little bit messier. This is because this is a value attached to investments expected to be made one year into the future, two years into the future, three years into the future… so on and so forth. This involves forecasting the expected stream of cash flows from the growth assets, their expected level of risks. This gives room for ‘manipulation’.

 

‘Manipulation’ you ask?

I could tell you more but the purpose of this blog post is not to make you a valuation guru but rather to help you identify when you should be in doubt of a business valuation.

No matter how sophisticated or simple the valuation methodology is (which is what we have tried to highlight above) or how experienced and knowledgeable the valuers are, or how glamourous the presentation is, the first thing you need to do after receiving a valuation number is to carry out a reality check!

 

What do you mean, ‘reality check’?

The valuation has to be practical.

The valuation has to be realistic.

The valuation has to be in sync with what is happening on the ground and not just an abstract number supported with abstract assumptions. And that is why you’ll hear the rather common phrase, ‘Excel money is real money!’

What are you buying when you are buying the company? Or, if you are on the sales side, what are you selling when you sell this company?

A great way to carry out a reality check is to ask a set of very specific questions. Assuming that the valuation you are staring at, (yes, that unreasonably big number you have in front of your screen, highlighted in bold and prepared by a team of highly intelligent consultants) is a correct representation of the value of the company and you were to spend that same exact amount (yes, that unreasonably big number) in purchasing property or land in a prime real estate location, would the value you receive from the prime property or land be the same? If the answer is yes, then by all means, that unreasonably big number is a good representation of the value of the company. If no, then ideally the company has either been overvalued (good news for a seller, but terrible for a buyer) or undervalued (not so good news for a seller but great news for a buyer).

We therefore advise that before you are comfortable with a valuation that you have either come up with or one that has been presented to you, do a reality check! If it adds up, all is good to go. If not, you might have to go back to the drawing books!

Happy valuation folks! And remember, there is no such thing as a correct valuation.

FAST Financial Modelling Competition: Why you should sign up

Job interviews can be stressful even for the seasoned professional who walks into an interview armed with a decorated portfolio and relevant years of experience. Now, picture yourself, a university graduate with little-to-no work experience, walking into a room and given the below spreadsheet and a case study.

 

The interviewer then says, ‘You have one and a half hours to get back to us’ and walks out of the room.

As they walk out, right hot on their heels is your dream of becoming an investment banker, financial analyst, financial consultant, portfolio manager or a practitioner in the private equity and venture capital industry, [insert fancy finance title here]…

Things they don’t tell you in uni

Your future employer may offer training but not on every aspect of the job because the assumption is that you went to university, right?

After the first round of interviews, which is mostly to measure you up against your resume and see if they like you enough, they may call you in for a second interview and hand you a financial model to not only make sense of, but make sure that the numbers balance.

But wait…

‘Each company has its own unique modelling template, so they should train me!’

Well, not for long. Company giants like F1F9, PwC, Finance Mechanics, InVhestia (that’s us by the way) and Grant Thornton now apply a standard way of modelling known as the FAST Standard.

What?

The FAST Standard is an international recognized financial modelling methodology used by major firms worldwide such as those previously mentioned in their modelling assignments. You can read more about it by clicking here.

Bragging rights: InVhestia is the first and only firm in Africa to become an accredited provider of the FAST Standard. You can check out the other global signatories by clicking here.

FAST is an acronym that stands for:

Flexible – A flexible model meets its objectives and can be maintained, re-purposed and updated as needed.

Appropriate – A model with an appropriate degree of accuracy reflects key business decisions without unnecessary detail.

Structured – A structured model has been built consistently and ensures that form follows function.

Transparent – A transparent model is as simple as it can be and does not have unnecessary complexity to obfuscate its functionality, and can be used by anyone with some modelling experience, not just its creator.

Back to your job hunting

The surest way to ace that interview is to walk in armed with the FAST Standard Level 1 Certification as proof that you:

  • Understand the FAST standard and
  • Can apply the FAST Standard in any modelling exercise.

Given that FAST methodology is new in the African market, we have a free online course that you can sign up for.  You can do it 15 minutes a day for 10 days for you to have a fighting chance to land that job. But that is, of course, as long as no one with a FAST Standard Level 1 Certificate walks in…

The Inter university FAST Financial Modelling Competition

Having done the 2.5 hour course (this is not a requirement but we strongly advise that you have a crack at it), to test your level of skill levels, sign up for our week long online modelling competition!

‘Now what would I want to put in all that effort?’

  • First place: Internship at a top financial institution, the full online FAST Financial Modelling course license, and InVhestia merchandise.
  • Second Place: The full online FAST Financial Modelling course license, and InVhestia merchandise.
  • Third place: InVhestia merchandise.

All competing modellers will receive a certificate of participation.

Do we have your attention now?

The competition will run between the 15th and 19th August, 2016* from 10 am to 3 pm of the first and last day whereby the system will be closed to allow us to grade your models. To participate, register at app.invhestia.com for our introductory course. Under ‘Tell us why you are interested in InVhestia’ state that you are interested in the financial modelling competition. This last part is important as it’ll help us find you.

Winners will be announced two weeks after the competition.

For regular updates check out (and like) our page and don’t forget to download and share the flyer!

 

*Late October dates to be communicated.

 

 

 

Riara University lecture

Kenyan landscape 

The Kenyan educational system is tailored to provide its citizens with relevant knowledge and skills applicable in the current job market. There is however often a gap where theory does not translate to practical and employers often find that they have to re-train graduates to be able to undertake career roles effectively.

InVhestia is bridging this gap by educating university students on what is required of them in the current job market. Being a corporate and project finance advisory firm, we believe that graduates ought to know the latest trends in the market that will give them an edge as they look to fit into the job market.

The FAST Standard financial modelling certification is one such tool that will give not only graduates but current finance professions financial modelling skills to make them more marketable in the job market. It is not uncommon to find graduates who have a good grounding in finance and business theory but cannot effectively translate the same to financial models, InVhestia, being the first and only African organization accredited to offer this certification, is looking to plug this theory-practice gap.

FAST, which stands for flexible, appropriate, structured and transparent, is an international financial modelling methodology developed and utilized by various industry experts including those from F1F9, PWC, Finance Mechanics, InVhestia and Grant Thornton.

 

The lecture

The lecture was eye opening for the 30 third-year students in attendance. They had a basic concept of what modelling was but one could tell the fascination with what they can do with excel. To certain the relevance of the FAST Standard, Stephen Gugu, the co-founder of InVhestia and Principal mentioned the companies that he and his team had trained for the FAST Standard modeling course. Most of them were well known financial institution that the students would like to intern or even work in.

Stephen gave the students an explanation of how the current job market works. While recruiting for most financial positions nowadays, employers, as part of the interview, will give the interviewee a case study and ask them to come up with a financial model that demonstrates their theoretical and practical knowledge. The FAST certification is meant to give the employer confidence that one is a competent financial modeler just as Chartered Financial Analyst (CFA) certification indicates that one is a competent financial analyst, FAST Standard Certification is already becoming a necessary post graduate course to take for one to show their competency in financial modelling.

One of the questions asked by the students was, ‘What guarantees do we have that we will get the well-paying job?’

The answer is quite simple, there are no guarantees. It’s the same question a person would ask themselves when applying for a master’s degree or a PhD; there are no guarantees but they give you an edge during an interview process and if that is not important it also gives you skills you can employ in your own work in budgeting and even consulting projects.

 

To learn more about the FAST Standard, go here.